New Compliance Challenges Arise as Prosecutors Pursue Novel Health Care Fraud Theories

Troutman Pepper

Pepper Hamilton LLP

On April 9, after four days of deliberations, a jury returned guilty verdicts for seven defendants in United States v. Beauchamp, No. 16-cr-00516-D (N.D. Tex. 2016). The federal bribery case involved allegations of a widespread scheme in which Dallas’s Forest Park Medical Center (FPMC), a physician-owned surgical hospital, paid approximately $40 million in bribes and kickbacks to surgeons, primary care physicians, chiropractors, lawyers, workers’ compensation preauthorization specialists and others in exchange for referring certain patients to FPMC. The government alleged that FPMC collected more than $200 million in tainted claims.

Traditionally, federal health care fraud prosecutions have focused on schemes involving harm to federal health care programs — namely Medicare and Medicaid. But in this case, the defendants primarily referred patients with high-reimbursing, out-of-network, private insurance benefits to FPMC. In this novel case, federal prosecutors referenced these referrals for commercial patients in charging the defendants with violations of the Travel Act, 18 U.S.C. § 1952.

The Travel Act, which was enacted in 1961 to combat racketeering, is a federal criminal statute that prohibits the use of mail or any facility in interstate commerce to further “unlawful activity.” It is triggered when a defendant travels, or uses the mail or any facility in interstate commerce, to violate a state law, even when there is no analogous federal statute. In other words, it is a tool that allows federal prosecutors to prosecute health care fraud that does not affect federal health care programs and to establish jurisdiction when the allegations only involve violations of state law. In Beauchamp, the Texas commercial bribery statute was found to prohibit certain payments for referring privately insured patients.

Federal prosecutors have rarely used the Travel Act to prosecute health care fraud cases in which federal programs are not implicated. In 2013, the Act was used to prosecute a case in which three New Jersey doctors accepted bribes from Biodiagnostic Laboratory Services LLC. Each of the three doctors pleaded guilty on the same day to violating the Travel Act, predicated on violations of the New Jersey commercial bribery statute.

Will the successful Beauchamp prosecution trigger an increased government interest in using novel statutory tools to prosecute health care fraud previously thought to be outside the reach of federal government scrutiny? Health care providers, as well as manufacturers and others in the health care industry, should be aware that they now may face increased risk of government scrutiny, even if they designed their compliance programs and commercial businesses to comply with federal health care laws.

Practice Pointers

  • Health care providers and entities should familiarize themselves with potentially applicable state laws, such as commercial bribery statutes, even if those laws are not specific to the health care industry.

  • Health care providers and entities should adapt risk assessments and compliance programs to cover commercial practices associated with privately insured patients, as well as patients participating in federal health care programs.

  • Compliance programs should consider applicable state laws and monitor compliance with them.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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